Chapter 9, Problem 9.14E

To determine

(a)

Introduction:

Accounting ratios are used to evaluate the financial performance of the business organisation

Debit ratio:

It measures the extents of company's leverage. It can be interpreted as proportion of company's assets financed by debts. It can be calculated by

  $\text{Debit ratio=}\frac{\text{total debt }}{\text{total assets}}$

To calculate:

Debit ratio of both the companies.

To determine

(b)

Concept Introduction:

Ratio of liabilities to shareholders' equity or debt to equity ratio: is used to evaluate company's financial leverage, it reflects the ability of shareholders equity to cover all outstanding debts.it can be calculated as follows.

  $\text{Debt to equity ratio=}\frac{\text{ total debt}}{\text{total shareholders equity}}$

To calculate:

Debt to equity ratio both the companies.

To determine

(c)

Concept Introduction:

Time interest earned TIE :

It is a matric used to measure a company's ability to meet debit obligation it can be calculated using following formula.

  $\text{Time interest earned=}\frac{\text{Earning before interest and taxes }}{\text{Total Interest payable}}$

To calculate:

Time interest earned for both the companies.

To determine

(d)

Introduction:

Accounting ratios are used to evaluate the financial performance of the business organisation

Solvency analysis:

Solvency analysis is used to evaluate companies' ability to pay its long-term debt, it also helps owner to determine the chances of firm's long-term survival, some of the ratios used for solvency analysis are as follows

To Interpret:

Ratio difference between both the companies.